The long (and short) of future healthcare

_{Disclosure – This is a non-independent marketing communication. The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report or an affiliate company and that there may be a conflict of interest which could impair the objectivity of the research.}

_{The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}

We examine the implications of demographic change for investors…

Demographics have re-entered the conversation after China further relaxed its now-three-child policy. However, for healthcare investors, the implications of ageing populations are less straightforward than they first appear…

It is a widely discussed fact that populations around the world, especially in developed nations, are ageing.

A problem that has long plagued Japan has now spread gradually westward through China and now into Northern Europe. While many observers predicted that a post-lockdown baby boom would emerge there has been scant evidence of this in the data thus far.

Equally, precedent suggests that it is unlikely to emerge, with societal catastrophes such as wars and recessions typically leading to a decline in the birth rate. Further, the slow pace of the economic recovery from COVID-19, particularly in employment prospects for younger workers, means that a ‘bounce back’ in the birth rate has limited prospects, with a more permanent decline looking more likely.

At the same time, improved healthcare among the wealthiest generation in history means that life expectancy continues to rise, bar the impact of a global pandemic. Together, these trends suggest that the dependency ratio (the number of people not of working age (working age is usually defined as 15-64) as a proportion of the total population) will continue to rise. If the birth rate truly doesn’t fully recover, this should simply rise faster.

The consequences of reduced childbirth

While an ageing population is typically viewed as a straightforward boon for the healthcare sector, the long-term impact of a rising dependency ratio is less straightforward.

With the burden of paying for pandemic support likely to be kicked down the road for a while at least, tax burdens are almost guaranteed to rise in future, as demand for healthcare also increases the stress on the tax system. At the same time, savings rates have plummeted in developed societies, meaning that the future elderly are unlikely to be as wealthy as their present-day peers.

In terms of healthcare this means that two trends are likely to collide: a growing demand for healthcare, combined with reduced means through which to fund it.

It is clear that the healthcare sector is unlikely to stay the same in light of this. Yet, predicting how services will change and how health outcomes will be measured in the future is a challenge.

Watch the video

The BBH team have an interesting Blog archive that contains many wide engaging thought pieces on the sector and the outlook for healthcare – click here to visit

Healthy healthcare investing

This is a challenge the managers of BB Healthcare Investment Trust (BBH), Paul Major and Brett Darke, have been considering for some time. Fundamentally, they look for companies that are helping western government fulfil healthcare needs more effectively at a lower cost, such as through operational improvements or incorporating technology.

Crucially, these aren’t next week’s winners; the managers invest on a three-to-five-year view, looking for companies at the forefront of longer-term change.

An example of this trend, in the trust’s top ten portfolio holdings, is Hill-Rom Holdings. Its operating subsidiary, Hillrom, is focused on healthcare ‘connectivity’. In practice, this means everything from communications between medical professionals and their patients, smart hospital beds, and even monitoring equipment for patients, such as ventilators and vital signs monitors. Collectively, this equipment should help embed improved efficiency within the operations of healthcare providers.

While the company’s stock price experienced some volatility during the height of the pandemic in 2020, over the long term it is an exceptionally strong performer, returning c. 123% in the five years to 16 June 2021. At the same time, it has seen a resurgence in its stock price in the last six months as the value of what BBH calls ‘managed care’ has come back into focus.

Long-standing returns from longevity

The trust’s long-term focus and clear investment thesis has in our opinion contributed to it consistently outperforming its benchmark index. Since the trust’s launch on 6 December 2016 to 31 May 2021 it returned 106.8% in share price terms, while the MSCI World Healthcare Index posted a total net return of 70.7%.

Click to visit:

_{This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.}

_{Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.}

_{Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.}

_{The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.}

_{The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.}

_{This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.}  

_{Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.}

_{PLEASE SEE ALSO OUR TERMS AND CONDITIONS}

_{Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.}